Consumer debt Q&A

October 22, 2008

Q: How does national consumer debt compare with debt in the past?A: U.S. consumer borrowing jumped more than double the amount economists forecast earlier this year, according to the Federal Reserve. Credit debt increased by $15.3 billion for March to $2.56 trillion, the biggest monthly rise since last November. Q: How does debt affect local consumers?A: About 10 years ago, GreenPath Debt Solution's average client had nearly the same gross income and level of indebtedness as the average client does today. Basic expenses, however, cost more today than they did back then, said Eve Pidgeon, a spokeswoman for the company, which has offices in Mishawaka and Elkhart. Indeed, debt hasn't necessarily increased, said Amanda Walker, manager of GreenPath. "But, locally, income has decreased, and it's making budgets tighter than it was a year ago," she said. Q: What is causing today's consumers to stay in the red?A: Factors such as the slowing economy, tighter bank standards for home equity loans and other borrowing and higher interest fees all play a role in affecting consumers' finances. It also doesn't help that people get used to living on a certain income, said Walker. So instead of downsizing, moving and or reducing spending when some of their income goes away, a credit card is an easy thing to turn to -- especially since they have become so widely accepted, she said. "Credit cards are more of a way of life than they used to be," Walker said. "People get in over their heads -- many times with housing payments -- and can't keep up with other things." GreenPath, in fact, is seeing more people delinquent on their housing accounts by 30 days or more and more people using credit to make everyday purchases, such as groceries and gas, Pidgeon said. "They don't even realize that this extended deficit spending is going to cause more problems down the road," she said. And if it continues, Walker said, the consumer's budget will easily be turned upside down.